Capital market regulator Securities Exchange Board of India (SEBI) recently gave an additional option of UPI (Unified Payments Interface) to retail investors to apply in the public issues of REITs and InvITs.
The change will be applicable to public issue of units of Real Estate Investment Trust (REIT) and Infrastructure Investment Trust (InvITs) which opens from August 1.
After consultation with stakeholders, it has been decided to provide an additional option to individual investors …with a facility to block funds through UPI mechanism for application value up to ₹5 lakh, Sebi said.
What are REITs and InvITs?
Real estate investment trusts are entities that own yield-generating real estate across a range of property sectors. These trusts comprise a portfolio of commercial real assets, a major portion of which is already leased out.
On the other hand, infrastructure investment trusts (InvITs) are constituted by a portfolio of infrastructure assets including highways and power transmission assets.
Both of them are new investment instruments in the Indian markets but are already popular in the global markets.
Wealth advisors opine they are a good investment vehicle but since they are new, retail investors are advised to allocate a small portion of their portfolio to these assets.
While speaking about the feasibility of investing in these alternative assets, Amol Joshi, Founder of PlanRupee Investment Services, says “There are certain advantages of having an equity component in the listed entities. Retail investors should, however, invest a smaller portion of portfolio in these assets. I don’t necessarily advocate investing into them as retail investors are already heavily invested into real estate by virtue of their residential property.”
He adds, “As of now, the historical data is limited on these assets. Once these assets have longer history under their belt, then we can have a fresh opinion on them.”
Ravi Saraogi, co-founder of Samasthiti Advisors says, “These are good investment vehicle. Through this, you get a diversified exposure to the commercial real estate. We recommend these to our clients but severally limit the exposure since they are new in India. In overseas markets, it is easier to evaluate how yields of this investment vehicle move during different period of time, how they react to interest rate changes. They are attractive for investors for six months when debt mutual funds are giving lower returns.”
“The ideal allocation to these assets is within 5- 10 percent within alternative asset class,” he says.
NPS offers investment in alternative assets
National Pension System schemes also enable investors to invest in alternative assets (known as Scheme A-Tier I of NPS) including REITs and InvITs.
The past one-year returns of these investments range between 6-10 percent. The past three-year returns of these asset classes range between 6-11 percent, as shown in the table below.
(Source: NPSTrust.org.in as on June 17, 2022)
It is vital to note that the returns vary from one pension fund manager to another. For instance, while SBI pension funds gave a return of 10.11 percent in past 5 years while HDFC Pension Management gave 9.07 percent during the same period.